US embassy cable - 03RANGOON1316

UNCLAS RANGOON 001316 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EAP/BCLTV, EB 
COMMERCE FOR ITA JEAN KELLY 
TREASURY FOR OASIA JEFF NEIL 
USPACOM FOR FPA 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, PGOV, BM, Economy 
SUBJECT: BURMA: PAYING TAXES TO THE DMV 
 
 
1. (SBU) Summary: In a nightmare bureaucratic scenario that 
unites tax authorities, the department of motor vehicles, and 
military intelligence, as of October 6th the Burmese 
government is using a mandatory annual car registration 
exercise to try and collect desperately needed tax revenue. 
Tax collection has been a serious problem for GOB coffers as 
taxpayer evasion, and tax collector corruption, have 
conspired to keep explicit tax revenues at a minuscule 2-3 
percent of GDP (per the government's inflated statistics). 
This new strategy will collect some short-term funds, and may 
punish a few scofflaws.  However, it comes at a bad time 
economically for consumers, further complicates an already 
confusing taxation system, and does little to address the 
serious problem of corruption among tax collectors.  End 
summary. 
 
2. (SBU) A new taxation scheme, focusing on annual motor 
vehicle registration by car owners, got underway on October 
6.  Those registering must prove that they paid income taxes 
on the money they used to purchase the car -- no mean feat in 
a country where paying income taxes often leads to more 
negative government attention than not paying.  If the owner 
cannot provide this evidence, s/he will be assessed on the 
spot a tax of 15 percent of the current market value of the 
car -- as set arbitrarily by Internal Revenue Department 
(IRD) -- not of the original purchase price.  Though 15 
percent is much lower than the normal maximum 50 percent 
income tax rate, in fact the amount of taxes paid will be 
quite high in kyat terms.  Car values have skyrocketed, 
alongside other "assets," due to a weak kyat and rampant 
inflation in recent years.  Thus, ten years ago if someone 
had 400,000 kyat in income to buy a car, s/he would have 
owed, at the highest income tax rate, 200,000 kyat as income 
tax.  The same car now is being valued by the IRD at 10 
million kyat -- a 1.5 million kyat, or $1,700 at current 
exchange rate, tax liability under the new scheme. 
 
3. (SBU) This strategy will punish some tax evaders; however, 
it does little to address other aspects of the revenue 
collection problem -- particularly corruption.  Though 300 
military intelligence officials have purportedly been trained 
to manage this new car tax scheme, these officers will likely 
be only slightly less crooked than the brazenly venal, and 
incompetent, Road Transport Administration Department staff 
that normally oversees car registration and sales tax 
matters.  Anecdotes are rolling in already of payoffs made 
directly to the adjudicating official in exchange for a clean 
bill of health.  We've also heard several complaints that 
everyone, even those who can provide the proper paperwork, is 
being assessed the punitive tax. 
 
4. (SBU) The timing of the move is not ideal.  The Burmese 
economy is scraping bottom, the private banking system has 
collapsed, and there is little formal commerce and nearly 
zero domestic investment.  The government is doing nothing to 
stimulate economic activity or thoughtfully reform the 
troubled tax system.  Adding a new, large burden on the 
country's mostly middle class car owners will likely take 
even more kyat out of circulation as people are forced to 
tighten their longyis to pay the new taxes. 
Martinez